FEBRUARY 2008
- Today’s generation lives better—and larger—than
any in history. For example, 50 years ago the average U.S. home
was around 1,200 square feet. By 1976, the average home had grown
to 1,645 square feet. By 2005, the average home was 2,434 square
feet. Houses are bigger, cars are more extravagant, and, as every
parent of a teenager knows, designer clothes and electronic gear
are the norm.

But high
living comes at a high price, as the ongoing subprime mortgage
crisis demonstrates. Too often, what people consider a “normal”
lifestyle is in fact financed by debt. Surveys suggest that Americans
lack basic financial knowledge about how to successfully manage
debt. For example, most Americans neither understand credit scores
nor regularly review their credit reports. A study by Experian,
one of the three largest credit-reporting agencies, on whether
consumers are using more debt to finance the “American Dream,”
found that consumer debt rose 12.5% over the two-year period from
February 2004 through February 2006, and averaged $11,669 in 2006
(see the Exhibit).
More ominously, the number of late payments rose almost 20%, and
personal bankruptcies increased over 31% during that time period.

An individual’s
first experience with debt often occurs when borrowing money to
finance a college education. As college costs soar, students increasingly
finance their educations with easy-to-obtain student loans and
credit-card debt. The Project on Student Loan Debt notes that
one-fourth of graduating seniors in 2004 carried more than $25,000
in student loan debt. At public four-year institutions, 62.4%
of graduating seniors have student loan debt, while 73.9% of graduating
seniors at private, nonprofit four-year institutions have student
loan debt. Upon graduating, many young professionals incur more
debt to purchase a home (which must then be furnished) and a car.
The pressure on young professionals to appear successful (e.g.,
new clothes, and meals at expensive restaurants) often fuels additional
credit-card debt.

Cultural
Trend Toward Materialism

Pursuing
a financial goal of owning more “stuff” reflects a
general cultural trend towards materialism. For example, a 1970
survey of about a quarter-million new college students found that
about 40% considered “being very well-off financially”
to be very important, and about 70% considered “developing
a meaningful philosophy of life” to be very important. By
1987, and continuing through the most recent survey, these numbers
reversed: In 2005, about 70% of entering college students considered
being very well-off financially to be very important, while about
40% consider developing a meaningful philosophy of life to be
very important.

One online
dictionary defines materialism as “the preoccupation with,
or emphasis on, material objects, comforts, and considerations,
with a disinterest in or rejection of spiritual, intellectual,
or cultural values.” Making
the attainment of material possessions a priority in one’s
life leads to a bigger house or better car, but the hidden psychological
and relationship “costs” of materialism are considerable.
For example, higher credit-card and mortgage payments often lead
to a stay-at-home spouse needing to return to work, to work overtime,
or to take a second job. Less time with family and community follows
from such choices. What is the psychological cost of these choices?

Are people
happier with bigger homes and better cars? Research suggests not.
More-materialistic people are less happy, and have poorer psychological
health, than are those who are less materialistic. These results
hold true in many countries, including Australia, Bulgaria, England,
Germany, Romania, Russia, Singapore, South Korea, and the United
States. Research also indicates that progress toward materialistic
financial goals (e.g., a bigger house, a better car) does not
increase psychological health or emotional well-being.

In addition,
results from both the United States and Hong Kong indicate that
workers who care more about money are more willing to engage in
unethical and illegal workplace behaviors. Hence, materialism
is a threat to workers’ psychological health and to organizational
internal control systems. Because of this vast body of accumulated
evidence, we have come to think of materialism as a public health
problem.

However,
despite the contrary claims of some psychologists, not all financial
goals are psychologically unhealthy. Our research results suggest
that positive (i.e., functional) financial goals contribute to
happiness. For example, financial goals of saving for college
or retirement, or thoughtfully giving to charity, all correlate
with better psychological health. Furthermore, research has shown
that progress toward nonmaterialistic goals (financial or otherwise)
increases psychological health, while progress toward materialistic
goals does not.

The AICPA’s
360 Degrees of Financial Literacy program (www.360financialliteracy.org)
focuses on educating the public about the importance of financial
literacy, and provides tools that help individuals at various
life stages work toward setting and achieving functional financial
goals. This program, begun in 2004, has earned widespread praise.
No one, however, has investigated the possibility that financial
education like 360 Degrees may also reduce materialism.

Can
the Tiger of Materialism Be Tamed?

A survey
of more than 1,000 college students and 200 accounting professionals
examined the link between materialism and financial literacy by
asking about financial and nonfinancial goals, credit histories,
purchasing habits, and what they would do with a financial windfall.
The survey also measured their financial knowledge (e.g., literacy),
level of materialism, and psychological health, using tools previously
validated in prior literature.

The survey
found no relationship between financial knowledge and materialism.
It did find, however, that materialistic people are less likely
to believe that: 1) they have financial autonomy, 2) they are
financially competent, and 3) financial resources can create and
sustain community and interpersonal relationships. The survey
also found that more-materialistic people are less happy; are
more likely to spend compulsively; are less likely to set and
achieve “functional” financial goals; and are more
likely to spend, rather than save, a financial windfall.

The authors’
research design doesn’t allow us to draw conclusions about
why materialistic people are less happy. This important issue
is a continuing focus of research. But the authors’ results,
and common sense, imply that changing consumers’ attitudes
towards money may also help them to be happier. Furthermore, the
research suggests that financial literacy education may have multiple
benefits. Specifically, financial literacy education may decrease
materialism, increase positive financial attitudes, and consequently,
create happiness and psychological health. The authors are excited
about future research into the extent to which, and how, financial
literacy may reduce materialism.

The authors
invite those who are interested to contact us to consider ways
that we may partner together to achieve this important goal.

Dan
N. Stone, PhD, CPA, is the Gatton Endowed Chair at the
University of Kentucky, Lexington, Ky., where he holds a joint appointment
in the Von Allmen School of Accountancy and the School of Management
(Decision Science and Information Systems). Benson Wier, PhD, is a professor of accounting
at Virginia Commonwealth University, Richmond, Va.Stephanie M. Bryant, PhD, holds the Dan R. and
Tina P. Johnson Distinguished Professorship in Accounting at the
University of South Florida, Tampa, Fla.

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